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SIMRP vs. Traditional Health Plans: Which Saves Employers More Money?

As benefits costs continue to rise, employers are actively searching for cost-effective alternatives to reduce employee benefits costs.  Among the leading options is the Self-Insured Medical Reimbursement Plan (SIMRP), a lesser-known but powerful strategy for companies looking to control benefit costs while still offering valuable benefits coverage to their employees.

In this in-depth comparison, we’ll explore the cost-effectiveness, tax advantages, and flexibility of SIMRP vs. traditional employer-sponsored plans to help decision-makers choose the smarter option.

What Is a Self-Insured Medical Reimbursement Plan (SIMRP)?

A Self-Insured Medical Reimbursement Plan (SIMRP) is a type of Employee Self-Insured Wellness Plan where tax savings is created to pay for qualified benefit expenses, instead of paying high premiums to an insurance company. SIMRPs are structured under Section 105 of the Internal Revenue Code, allowing them to operate on a pre-tax basis and deliver significant payroll tax savings for both the employer and employee.

Unlike traditional health insurance, which relies on insurance carriers to manage risk and claims, SIMRP gives employers more control over the design and administration of the plan. It can work alongside existing health insurance or the tax savings created by the SIMRP can be used to purchase qualifying coverage.

What Are Traditional Health Plans?

Traditional group health insurance plans are the most common form of employee health benefits. Employers pay some or all of the fixed monthly premiums to a commercial insurer, which in turn pays for covered services based on the policy’s terms. These plans typically include comprehensive coverage, co-pays, deductibles, and provider networks.

While convenient, traditional health plans are often expensive, especially for small to mid-sized businesses. Premiums increase annually, and employers have little flexibility in plan customization.

What Benefits Are Included With Our SIMRP Program?

  • 24/7 unlimited telemedicine doctor visits for any physical or mental health issue for your employee and their family.
  • RX Valet with 37 commonly prescribed medications with zero co pay.
  • Discounts on hundreds of other prescription drugs.
  • Discounts on Dental and Vision coverage.
  • The tax savings created by the SIMRP can be used to purchase a variety of supplemental insurance benefits and/or qualifying coverage if the employee does not have primary health insurance from another source.
Benefits Included With Our SIMRP Program

SIMRP vs. Traditional Health Plans: Cost Comparison

  • Premium Costs vs. Self Insured Costs

    Traditional plans require employers to pay some or all of the high monthly premiums, regardless of how much employees actually use the coverage. In contrast, SIMRP benefits are paid for with tax savings created by the program. This model makes results in no out of pocket costs for the employer or employee and creates payroll tax savings for the employer.

  • Administrative Expenses

    With traditional health plans, employers incur built-in administrative fees and commissions paid to brokers and insurance providers. On the other hand, SIMRP administrative costs are paid for with the tax savings, especially when managed by a third-party SIMRP provider like Fidelity Professional Relief Services. This reduction in operating costs further adds to the overall savings and bottom line profits of your organization. This lowers an employer’s unemployment tax liability.

  • Tax Savings

    Traditional plans may offer pre-tax premium deductions for employees, but employers still pay a lot of payroll taxes on employee wages. SIMRP stands out with more substantial decreases to employee taxable wages without reducing the net income of the employees. This results in substantial savings on FICA, FUTA, and SUTA taxes for the employer, while employees benefit from tax-free reimbursements and a slight net pay increase. By reducing taxable wages through SIMRP, businesses may lower their workers’ compensation insurance costs.

  • Workers Compensation Insurance Savings

    One factor in the cost of workers’ comp insurance is the amount of gross taxable wages your company reports. Using the SIMRP strategy reduces the gross taxable wages your organization pays, which can result in a reduction of your workers comp insurance cost by 10%-30%.

Tax Benefits Of SIMRP

One of the biggest advantages of SIMRP is its favorable tax treatment. Employers avoid paying payroll taxes on reduced gross taxable wages, and employees receive reimbursements tax-free, increasing their take-home pay. Additionally, all employer costs are more than paid for by the tax savings created by the SIMRP are deductible as a business expense. This triple-tax advantage makes SIMRP one of the most cost-efficient benefit strategies available to employers today.

While convenient, traditional health plans are often expensive, especially for small to mid-sized businesses. Premiums increase annually, and employers have little flexibility in plan customization.

Flexibility And Customization

SIMRP offers employers greater control and flexibility than traditional benefits. We work with employers to utilize the tax savings created to give employees the benefits that will be most beneficial for their situation. Moreover, it integrates seamlessly with other health plans and can be used to supplement a high-deductible health insurance plan or function as a standalone benefit.  In contrast, traditional health plans have rigid structures defined by the insurer, leaving little room for customization to suit unique workforce needs.

Compliance and Risk Management

SIMRP, when set up correctly, is fully compliant with IRS rules. Partnering with a provider like Fidelity Professional Relief Services ensures that the plan is properly documented, administered in accordance with IRS Section 105, and regularly updated to meet regulatory changes. Traditional plans, while generally compliant by default, do not offer the same strategic flexibility when it comes to cost management.

Ideal Use Cases For SIMRP

SIMRP is particularly advantageous for:

  • Small to mid-sized businesses seeking better control overall costs.
  • Organizations encouraging their workforce to be more proactive with their health.
  • Businesses looking to offer competitive benefits without high premiums.
  • Employers aiming to reduce payroll tax liability.

Larger companies may also benefit by using SIMRP as a supplemental benefit to traditional insurance, particularly to pay for some benefits they are not getting or replacing benefits the employees or employer are paying for out of pocket.

Employee Satisfaction And Retention

Despite being cost-effective, SIMRP doesn’t sacrifice employee satisfaction. With valuable benefits and not out of pocket costs, employees often feel more empowered and valued. Employers can position SIMRP as a premium benefit that promotes flexibility, wellness, and financial support—all of which contribute to higher retention and morale.

The Bottom Line: Which Plan Saves Employers More?

While traditional plans offer familiarity and full-service coverage, their high costs, limited flexibility, and annual rate hikes make them less attractive for cost-conscious businesses. SIMRP, on the other hand has no net costs, substantial payroll tax savings, workers comp insurance cost savings, and high employee satisfaction.

For employers focused on cost-efficiency, tax optimization, and strategic flexibility, SIMRP clearly emerges as the smarter, more sustainable choice.

Get Expert Help Setting Up SIMRP

At Fidelity Professional Relief Services, we specialize in helping businesses design, implement, and manage Self-Insured Medical Reimbursement Plans tailored to their workforce and financial goals. Whether you’re considering replacing your group health plan or supplementing existing benefits, our experts are here to guide you through every step.

Contact us today to learn how SIMRP can help your business save more while supporting your employees.

Contact Us Today

How Employers Can Legally Reduce Payroll Taxes with SIMRP

Reducing payroll taxes is a top priority for many businesses looking to optimize costs while staying compliant with IRS regulations. One highly effective yet often overlooked strategy is implementing a Self-Insured Medical Reimbursement Plan (SIMRP). This tax-advantaged plan allows employers to reimburse employees for medical expenses in a way that lowers payroll taxes while offering valuable tax-free benefits to employees.

In this guide, we’ll break down how a SIMRP can help your business save money, how it works, and what compliance requirements you must follow. If you’re looking for a legal, IRS-approved method to cut payroll costs, this article will walk you through everything you need to know.

What Is a Self-Insured Medical Reimbursement Plan (SIMRP)?

A Self-Insured Medical Reimbursement Plan (SIMRP) is an IRS-approved employer-funded health benefit plan that reimburses employees for qualified medical expenses. Unlike traditional health insurance, a SIMRP is self-funded, meaning the employer sets aside money to cover healthcare costs instead of paying premiums to an insurance provider.

Key Benefits of SIMRP for Employers

  • Reduces Payroll Taxes – Wages set aside for SIMRP are not subject to payroll taxes (Social Security, Medicare, and unemployment taxes).
  • Tax-Free Employee Benefits – Employees receive medical reimbursements tax-free, reducing their taxable income.
  • Increases Employee Satisfaction – Helps attract and retain talent by offering a valuable healthcare benefit.
  • Flexibility – Employers control the budget and reimbursement limits, making it cost-effective.
  • IRS Compliance – A well-structured SIMRP meets Section 105 of the Internal Revenue Code, ensuring legal tax savings.
Employer Benefits of SIMRP

How a SIMRP Helps Employers Legally Reduce Payroll Taxes

By setting up a Self-Insured Medical Reimbursement Plan, employers can shift a portion of taxable wages into tax-free reimbursements, effectively lowering payroll tax liabilities. Here’s how it works:

  • Lowering Social Security & Medicare Taxes

    Normally, employers and employees each pay 7.65% in FICA taxes (Social Security & Medicare). Amounts allocated to a SIMRP are not subject to these taxes, leading to immediate savings for both employer and employees.

  • Reducing Federal & State Unemployment Taxes (FUTA & SUTA)

    Since SIMRP funds are not considered taxable wages, they are excluded from FUTA & SUTA calculations. This lowers an employer’s unemployment tax liability.

  • Decreasing Workers’ Compensation Premiums

    Many workers' compensation premiums are based on total taxable payroll. By reducing taxable wages through SIMRP, businesses may lower their workers’ compensation insurance costs.

Example of Payroll Tax Savings with SIMRP

Without SIMRP With SIMRP
Employee Salary: $50,000
Employee Salary: $45,000
Employer Payroll Taxes (FICA, FUTA, SUTA): $3,825
Employer Payroll Taxes: $3,442
SIMRP Reimbursement: $5,000
SIMRP Reimbursement: $5,000
Total Cost to Employer: $53,825
Total Cost to Employer: $50,442

  • Savings with SIMRP: $3,383

    This example demonstrates how employers can reduce taxable payroll and save on payroll taxes without reducing employee benefits.

Steps to Set Up a SIMRP for Your Business

A Self-Insured Medical Reimbursement Plan (SIMRP) wellness program has a broad range of benefits, including:

Step 1: Create a Written SIMRP Plan Document

To comply with IRS Section 105, a SIMRP must have a formal written plan outlining:

  • Eligibility criteria (full-time, part-time, or specific employee classes)
  • Types of reimbursable medical expenses (aligned with IRS Publication 502)
  • Reimbursement limits and any funding caps
  • Claim submission and approval process

Step 2: Determine Reimbursement Limits & Budget

Employers can set reimbursement caps per employee, ensuring cost control. Some common reimbursement structures include:

○ Fixed annual allowance per employee (e.g., $3,000 per year)

  • ○ Percentage-based reimbursement (e.g., 50% of out-of-pocket medical expenses)

Step 3: Implement a Claims Submission Process

Employees must submit proof of eligible medical expenses (such as receipts or invoices). Employers should establish a simple reimbursement process to ensure smooth administration.

Step 4: Maintain Proper Documentation for IRS Compliance

To legally claim payroll tax deductions, employers must:

○  Keep records of reimbursement claims & payments

○  Ensure expenses qualify under IRS rules

○  File necessary tax forms and maintain proper accounting

Step 5: Educate Employees About the SIMRP Benefit

For employees to maximize the benefit, they need to understand:

  • ○  How to submit claims
  • ○  Which medical expenses qualify
  • ○  How the plan lowers their taxable income

Clear communication will improve employee participation and increase appreciation of the benefit.

Setting Up SIMRP for Business

IRS Compliance & Legal Considerations for SIMRP

For employees to maximize the benefit, they need to understand:

  • ○  How to submit claims
  • ○  Which medical expenses qualify
  • ○  How the plan lowers their taxable income

Clear communication will improve employee participation and increase appreciation of the benefit.

IRS Compliance & Legal Considerations for SIMRP

To ensure a Self-Insured Medical Reimbursement Plan (SIMRP) is legally compliant, employers must follow:

  • IRS Section 105 Requirements
  • Equal Treatment of Employees
  • HIPAA & ACA Compliance
  • Record-Keeping & Tax Reporting
  • The plan must be in writing and meet IRS guidelines.
  • Benefits cannot discriminate in favor of highly compensated employees.
  • Employers may need to comply with health privacy laws and the Affordable Care Act (ACA) if applicable.
  • Employers must maintain detailed reimbursement records for IRS audits.

Consulting with a tax professional or benefits advisor ensures full compliance while maximizing savings.

Is a SIMRP Right for Your Business?

A Self-Insured Medical Reimbursement Plan is ideal for small and mid-sized businesses looking to:

✔ Reduce payroll taxes legally

✔ Offer employees a tax-free medical benefit

✔ Maintain cost control over healthcare expenses

✔ Stay compliant with IRS regulations

If you’re an employer looking for a legal tax-saving strategy, implementing a SIMRP is a smart financial move.

Start Saving on Payroll Taxes with SIMRP

A Self-Insured Medical Reimbursement Plan (SIMRP) is a powerful, IRS-compliant strategy that allows employers to reduce payroll taxes while providing valuable tax-free medical benefits to employees. By lowering taxable wages, companies can cut payroll costs without reducing employee compensation.

Key Takeaways:

✔ Employers save on payroll taxes (FICA, FUTA, SUTA) by reimbursing medical expenses. 

✔ Employees benefit from tax-free reimbursements, increasing their take-home pay.

✔ SIMRP is 100% legal under IRS Section 105, as long as proper documentation is maintained.

✔ Setting up a SIMRP is simple, and businesses can control costs while offering a competitive benefit.

If you’re looking for a cost-effective way to manage payroll taxes and enhance employee benefits, implementing a Self-Insured Medical Reimbursement Plan is a proven solution. Consider speaking with a payroll or tax specialist to structure your SIMRP for maximum savings and compliance.

By taking action now, your business can start saving thousands in payroll taxes while improving employee satisfaction.

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What is a Self-Insured Medical Reimbursement Plan (SIMRP) and How Does It Work?

When it comes to managing healthcare costs, businesses are constantly looking for flexible and cost-effective solutions. One such approach that has gained traction is the Self-Insured Medical Reimbursement Plan (SIMRP). But what exactly is a SIMRP, and how does it work?

This comprehensive guide explores the ins and outs of SIMRP, its benefits, implementation, and how it can help employers and employees manage healthcare expenses efficiently.

Understanding a Self-Insured Medical Reimbursement Plan (SIMRP)

 A Self-Insured Medical Reimbursement Plan (SIMRP) is a voluntary wellness program that is paid for with employee tax savings created by tax codes in the Affordable Care Act.  The wellness program is not health coverage, and primary medical insurance is required for the employee to qualify.  If the employees do not have primary medical insurance, some of the employee tax savings can be used to purchase qualifying coverage.  The SIMRP also results in reduced employer payroll tax costs, which can lower operating costs.

How Does SIMRP Differ from Traditional Health Insurance?

Feature Traditional Insurance Self-Insured Medical Reimbursement Plan (SIMRP)
Premiums
Fixed monthly payments
Paid for with employee payroll tax savings
Flexibility
Limited plan options
Customizable supplemental benefits are possible
Cost Control
Higher due to fixed premiums
Lowers employer payroll tax costs by reducing gross taxable wages.
Compliance & Regulations
Governed by ACA & state laws
Is compliant with federal and state regulations.

How Does SIMRP Work?

  • Employer Sets Up The Program

    The qualified employees have a pretax deduction and offsetting untaxed reimbursement on the employee’s paycheck to create the payroll tax savings to pay for the qualified benefits.

  • Employees Tax Savings Pays For Benefits

    The cost of the wellness program and benefits are paid for by the employee with the tax savings created by the SIMRP.

  • Employer Processes Benefits Payments

    The employer collects the funds from the employees for the cost of the benefits through a post-tax deduction on the employee's paycheck.

  • Savings Achieved

    Every time the employer processes a payroll, the reduced employer tax savings is realized.

Key Benefits of a SIMRP for Employers & Employees

  • Cost Savings for Employers

    The SIMRP Program reduces the employees' gross taxable wages without lowering their net take-home pay. Reducing employees' gross taxable wages also reduced the employer payroll tax costs and workers' comp insurance costs.

  • Flexibility in Plan Design

    Employers can tailor SIMRP benefits to suit their workforce, choosing what extra benefits can be paid to the employee with the tax savings created by the SIMRP Program.

  • Tax Advantages

    Reimbursements are tax-free for employees. Employers lower their employer payroll tax costs.

  • Improved Employee Satisfaction

    The employee wellness program and benefits are very useful and valuable to your employees. This can increase employee productivity and reduce employee turnover costs.

Types of Medical Expenses Covered Under SIMRP

A Self-Insured Medical Reimbursement Plan (SIMRP) wellness program has a broad range of benefits, including:

  • Unlimited telemedicine doctor visits without co-pay for the employee and their immediate family
  • 37 prescription medications at no cost
  • Discounts on other prescription drugs
  • Mental health issues including depression, anxiety, addiction, and more through telemedicine
  • Discounts on dental and vision care
  • Nutrition
  • Much More
Types of Medical Expenses Covered Under SIMRP

How to Implement a SIMRP in Your Business?

Step 1: Determine How Many Employees Qualify

We work with you to calculate how many of your employees will qualify for the SIMRP Program.

Step 2: Educate Qualified Employees

We work with you to educate your qualified employees about the benefits of the employee wellness program and other benefits.

Step 3: Ensure Compliance with IRS Guidelines

We keep the wellness program compliant with all federal and state laws.

Step 4: Implementation

We work with your payroll provider to implement the deductions and reimbursements on your employee’s paychecks

Step 5: Collect Savings and Benefits Payment

The employer collects the employee’s tax savings every time they process payroll.  The employer will make a payment for the benefits in the following month, with the employee tax savings they collected.

Common Misconceptions About SIMRP

SIMRP is the same as an HRA or FSA.

While similar, SIMRP differs in structure and flexibility. Unlike an HRA, SIMRP is entirely funded by payroll tax savings.

Employees have to wait too long for reimbursement.

Employees are simultaneously reimbursed for expenses at the same time that are charged for the benefits payments.

The SIMRP Is Not Compliant

The SIMRP Program tax codes are compliant with all federal and state laws as long as they are paying for qualified benefits with qualified employees.
Who Should Consider a SIMRP Plans

Who Should Consider a SIMRP?

Ideal for:

May Not Be Suitable for:

  • Small and mid-sized businesses looking to lower costs
  • Companies with full time W2 Employees (30+ hours per week average)
  • Employers that are trying to increase employee productivity and reduce turnover costs.
  • Companies with independent contractor employees
  • Companies that do not have any full-time employees
  • Companies with employees don’t get paid consistently every pay period.

How Does SIMRP Impact Employees?

Pros Cons
Unlimited telemedicine doctor visit for them and their family.
Does not cover in person doctor visits.
Tax-free Reimbursements.
The changes to their paycheck may be confusing if not properly educated about the program.
Increased Employee Net Pay.
Reduced contribution to Social Security from lower taxable wages.

Frequently Asked Questions (FAQs) About SIMRP

Is a SIMRP the same as traditional medical insurance?

No, the SIMRP Program creates tax savings for employee wellness benefits, but it is not medical insurance.

Are there contribution limits for SIMRP?

Yes, there is a limit to the amount of employee deductions and reimbursements to stay compliant with federal and state laws.

Can part-time employees participate in SIMRP?

No, the employees must average at least 30 hours per week or more and must be W2 employees.

Is there a risk of IRS penalties with SIMRP?

No, as long as the plan follows IRS Section 105 guidelines, there should be no issues.

Is SIMRP Right for Your Business?

A Self-Insured Medical Reimbursement Plan (SIMRP) is a strategic option for businesses looking to lower operating costs by offering employees compliant voluntary wellness programs. Its flexibility, cost-saving potential, and tax advantages make it an attractive to almost any type of employer.

If you’re considering SIMRP for your company, ensure proper compliance, educate employees, and work with professionals to maximize its benefits.

Want to explore SIMRP options for your business? Contact our team today for expert guidance on implementation!

Contact Us Today

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With our experience and commitment to quality, we can help you achieve your business goals and overcome any challenges you may face along the way.

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Phone: +1-657-373-3777
Email: info@fprscorp.com
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